Wednesday, 22 January 2014

The Office for
National Statistics (ONS) has released the latest set of UK labour market data,
mostly covering the three months to November last year.

In terms of the
pace of employment growth, these latest figures could hardly be better. Many
more people in work (up 280,000 in a single quarter), the rate of unemployment
already down to 7.1%, fewer young people without work (down 39,000 on the
quarter), fewer long-term jobless (down 18,000), rising job vacancies and a
fall in redundancies. The number of unemployed people on Jobseekers Allowance
has also fallen (by 24,000 in December)

The rise in
employment is fairly evenly split between employees and self-employed people. Full-time
employment accounts for the bulk (80%) of the total increase and the number of
part-timers who want a full time job, one measure of underemployment in the
economy, has at last fallen (down by 12,000). The unemployment rate has fallen
in every nation and region of the UK except South West England (where there has
been an increase of 0.5 percentage points) and Northern Ireland where the rate
is unchanged.

However, all this
good news is yet to significantly boost the economic feel good factor for most
workers because soaring employment is still barely registering in the pay
figures. Average weekly earnings are rising at an annual rate of only 0.9%,
still well below consumer price inflation of 2%.

It’s now
inevitable that unemployment will soon fall below the Bank of England’s forward
guidance rate of 7%, though precisely when remains uncertain (although the headline
three month measure of the unemployment rate fell to 7.1 in November, the
latter month itself saw the rate tick-up to 7.4% on the volatile single month
measure). But despite this the weakness of pay growth suggests there is still a
considerable amount of slack in the labour market which for the time being
remains an inflation free zone. Better than expected news on jobs is no reason
for an early rise in UK interest rates.

Thursday, 9 January 2014

The Department of Work and
Pensions was uncharacteristically sotto voce yesterday when it released figures
on the labour market status of Britain’s ethnic minorities for the 20 year period
up to and including September 2013. Those looking for a brief summary had instead
to wade through a series of data spreadsheets in order to single out the key headlines
for themselves.

My attention was
drawn to the figures on youth unemployment, which has yet to be significantly
affected by the emerging economic recovery. Although the vast majority (8 in
10) of the almost 1 million young unemployed people in Britain at present are
white, it’s clear from an interrogation of the data that youth unemployment is
disproportionately affecting at least some of Britain’s ethnic minorities.

The headline
unemployment rate for whites aged 16-24 (19% in September 2013) is much lower
than that for blacks (45%), young people of mixed race (26%), Indians (34%),
Pakistani/Bangladeshis (46%) and Chinese (29%). As is well known, however, our
perspective of youth unemployment is affected by the fact that so many young
people participate in full-time education – which reduces the size of the
active workforce and raises the measured unemployment rate – and includes young
people in full-time education who are looking for work.

If instead one looks at
unemployed jobseekers not in full-time education as a proportion of all young
people in the 16-24 age group the adjusted ‘youth unemployment rate’ for whites
is measured at 10.4% rather than 19%. Moreover, since people from different
ethnic groups have different propensities to enter education or to look for
work this adjustment likewise alters our view of youth unemployment rates for
the other ethnic groups, in some cases markedly: 12.1% for blacks, 10.1% for
young people of mixed race, 10.9% for Indians, 15.3% for
Pakistani/Bangladeshis, and 5.4% for Chinese.

Unlike the headline youth
unemployment rates, the adjusted rate suggests that only two ethnic minorities,
blacks and Pakistani/Bangladeshis, fare much worse than whites, while young
Chinese fare much better. However, some commentators object to this adjustment
for a variety of reasons, notably because it excludes young inactive jobless
people not in full-time education. Adding these people to young unemployed job-seekers
(to obtain a figure broadly approximating to that for young people not in
employment, education or training, or ‘neet’) is problematic since not all
jobless people want to work or study at any given time. But while doing so
shows ‘neet’ rates to be higher than adjusted unemployment rates they also offer
a different perspective on ethnic minority joblessness than that conveyed by the headline youth
unemployment rate: 19.3% for whites, 19.9% for blacks, 17.7% for young people
of mixed race, 19.1% for Indians, 26.9% for Pakistani/Bangladeshis and 14.2%
for Chinese.

A positive aspect of
these figures is that they show relatively little change in the relative
position of the various ethnic groups since before the recession in 2008. But the
persistence of an ‘unemployment gap’ between black, Pakistani/Bangladeshi and
white youths on all these various measures suggests that there is a larger
structural element to the problem of youth unemployment for some ethnic
minorities that won’t be solved by a stronger economic recovery alone.

It remains my view
that around half the current total level of youth unemployment is due to weak
demand for labour. As a result we should start to see a substantial and welcome
fall this year if, as I now expect, job vacancies return to the pre-recession
level. However, while urgent improvement in skills and employability is needed to
reduce the remaining structural component of the problem, with ethnicity such a
significant feature of youth unemployment for some groups more has to be done
to tackle the racial inequality that also appears to be a key underlying causal
factor. This receives too little attention in policy discussion of solutions to
youth unemployment and ought to be highlighted.

Tuesday, 7 January 2014

Another New Year and self-help
professionals are in full-swing, urging us all to get into better physical or
emotional shape. Enthusiasts for Human Resource Management (HRM) are joining in
too, calling upon organisations to ‘work smarter’ and engaging employees to
boost labour productivity. UK HRM commentators are especially exercised about
this at present in the belief that improved people management is the key to reversing
the big (and still puzzling) fall in UK productivity since the start of the
recession which has widened the productivity gap with other major developed
economies. However, it’s important not to overhype the significance of HRM in
the UK’s productivity story and also to ask what role HRM should play in
promoting productivity, so a brief analytical perspective is useful.

The most recent comparative
data published by the Office for National Statistics (ONS) show that in 2012 UK
output per hour was 29 percentage points lower than in the United States, 24
percentage points below Germany and France, 3 percentage points below Italy, 1
percentage point below Canada, but 16 percentage points above Japan. The 16
percentage point difference between UK output per hour and the average of these
countries is the ‘productivity gap.’

The consensus of studies of
the causes of the gap indicate that the entire difference between productivity
in the UK and the major European economies is entirely explained by the UK’s
relatively low level of investment in physical and human capital. By contrast,
half the productivity gap with the United States is due in addition to less effective
use of physical and human capital in the UK. This latter deficiency is in part due to deficient
management in the UK, though this involves management in general not solely
people management. Moreover, insofar as people management helps explain part of
the United States success story on productivity this isn’t because US
organisations are applying the kind of ‘high engagement’ people management
strategies beloved of HRM enthusiasts. US workplace management practice is commonly
very hardball by European standards, with levels of employee engagement often
very low even by current UK standards, an observation that undermines the
frequently asserted link between engagement and productivity. Overall therefore
the role of HRM in closing the productivity gap is thus far from
straightforward and not necessarily good news for workers.

As for the productivity
puzzle, this refers to the unexplained absolute and relative fall in UK productivity
in recent years. The productivity gap in 2012 was wider than at any time since
1994, with UK output per hour 2 percentage points below its pre-recession peak
and 15 percentage points lower than if productivity had continued to grow at
the average pre-recession rate.

Economists are divided on
the causes of the fall in productivity. Some consider it a temporary phenomenon
caused by weak demand in the economy that will disappear over time as the economy
recovers. Those holding this view explain the fall in terms of workers
accepting cuts in their real pay to avoid unemployment, encouraging organisations
to produce any given level of output in more labour intensive ways. Eventually,
falling unemployment will put upward pressure on pay, thereby encouraging
organisations to become more productive so as to curb labour costs. Other
economists by contrast think there has been a permanent, or at least long lasting,
hit on the productive potential of the economy reflecting the damaging
structural impact of the financial crisis. And there are those who combine demand
and structural explanations, suggesting that real wage cuts in the wake of weak
demand have acted as a disincentive to capital investment which will lower
productivity growth over the longer term.

HRM probably played an
integral role in the UK's recent productivity story by wisely encouraging organisations
to seek alternatives to redundancy during tough economic times and persuading
employees to put jobs before pay rises. Not surprisingly, however, the HR
profession, which puts an awful lot of effort promoting itself as a key source
of organisational performance, has been somewhat reluctant to see headlines
proclaiming ‘HR achieves welcome fall in UK productivity’. As a result we instead
continue to see lots of assertion that HR will drive the UK to future
prosperity, although even here the message is confusing, with calls for higher
investment in human capital often buttressed by apologias for bad employment
practices, such as the use of zero hours contracts, that only serve to the increase
the appetite for low cost, low productivity production.

The HRM narrative on UK
productivity remains disappointing. The millions of people stuck in low productivity
jobs with poor pay and conditions deserve more than the current diet of simplistic
management consultant nostrums of engagement and empowerment which take no account
of the reality of life in most organisations. In particular we need HRM models
that are truly about people, for people and involve people, which in an honest
way advocate improvements in pay and workplace conditions, recognise that proper
engagement requires genuine employee consultation and questions deregulation as
the solution to our poor productivity performance.